Low labor, land costs will appeal to Chinese investors: experts
The advanced economies of North America and Europe have been the main destinations for China's foreign direct investment (FDI) in recent years, but countries along the route of the Belt and Road (B&R) initiative are also becoming "hotspots" where Chinese firms can export domestically developed technology and capitalize on cheap resources, experts said on Monday.
The comments came after U.S. research agency the Brookings Institution published a report on May 8, claiming that "so far China is investing globally… but not so much in its B&R initiative." The main destinations for China's FDI are still the usual areas such as Europe, the U.S., Australia and Canada, the report said.
Ruan Zongze, vice president of the China Institute of International Studies, told the Global Times on Monday that "the U.S. and European markets do have an edge in attracting Chinese capital thanks to their innovative technology."
"The logic behind the FDI outflows to the U.S. and Europe is consistent with the government agenda of industrial upgrading and entering high value-added markets, especially when the domestic economy has entered a 'new normal' period and quality is now being prioritized over quantity," Ruan said.
Bai Ming, a research fellow at the Chinese Academy of International Trade and Economic Cooperation, agreed, noting that this is the reason why an increasing number of merger and acquisition deals initiated by Chinese companies such as Midea's takeover of German robotics maker Kuka are inked in the U.S. and European countries.
In 2016, China's combined FDI to North America and Europe more than doubled, reaching a record high of $94.2 billion, according to figures released by Baker McKenzie in February. That represents about 60 percent of China's total FDI outflow last year.
FDI to B&R countries
From 2013, when the B&R initiative was proposed, to 2016, China's FDI to countries along the B&R route totaled more than $60 billion, the State Council, China's cabinet, said on May 12.
Last year, China's FDI to B&R countries totaled $14.5 billion, making up 9 percent of overall outbound FDI, according to a statement on the website of the Ministry of Commerce (MOFCOM). In 2015, the number increased 18.2 percent year-on-year to $14.8 billion, MOFCOM said.
"It's quite normal to see some fluctuations in China's FDI to B&R countries because such investment is growing in a gradual manner," Ruan said, noting that the current Chinese FDI into B&R countries is well above the amount several years ago.
Experts pointed out that as most countries along the B&R route are developing countries, the motivation driving China's FDI outflow to those nations is different from the U.S. and Europe.
"Chinese investments in B&R countries have a focus on infrastructure, a sector in which domestic contractors have developed mature technology and in which they have years of experience," Bai told the Global Times on Monday. "This kind of FDI outflow is actually a way to export homegrown technologies and expand China's international influence." A large number of countries along the route suffer from backward infrastructure conditions and energy shortages, indicating that there is great potential for Chinese contractors to participate and invest more in the future, Bai added.
Another attraction is the relatively low costs for labor and land in B&R countries, making them favorable destinations for domestic labor-intensive manufacturing industries to build up assembly lines, experts said.
"Currently most investors in the B&R countries are State-owned enterprises, but the low costs will attract more private players to establish factories there in the future," Ruan noted.
